The Securities and Exchange Commission adopted rules implementing the “say-on-pay” and “say-on-golden parachute” provisions of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act on January 25, 2011. The SEC adopting release is available at and our recent client alert on the release can be found at

This article summarizes the new Compliance and Disclosure Interpretations (CDIs) the Commission issued on February 11, 2011, with respect to the rules, discusses trends in say-on-frequency recommendations and highlights voting results thus far in the 2011 proxy season.  

New CDIs

The new CDIs can be found here: They offer further explanation of particular provisions of the rules, such as the form of resolution required, say-on-golden parachute disclosure and issues particular to smaller reporting companies.  

Form of Resolution — In new CDIs 169.04 and 169.06, the SEC clarifies that the vote for say-on-frequency, as required by Rule 14a-21(b), does not need to be in the form of a resolution and that companies can use the words “every year, every other year, or every three years, or abstain” in lieu of “every 1, 2, or 3 years, or abstain.”  

Additionally, CDI 169.05 explains that companies can use a plain English equivalent instead of the words “pursuant to Item 402 of Regulation S-K” when describing the type of compensation disclosure the shareholders are voting on for the say-on-pay vote.  

Say-on-Golden Parachute Compensation — New CDI 128B.01 presents a situation where a company has held a say-on-pay vote at its annual meeting and as part of the compensation disclosure, the company has included the disclosure required under new Item 402(t) of Regulation S-K relating to golden parachutes for the executive officers named in the Summary Compensation Table. Now the company plans to prepare a merger proxy statement, but in the interim has also hired a new principal executive officer. The company wants to rely on Instruction 1 to Item 402(t) to exclude the new principal executive officer from the merger proxy statement’s say-on-golden parachute compensation vote and the related Item 402(t) disclosure.

Instruction 1 provides that Item 402(t) disclosure is required for those executive officers who were included in a company’s most recently filed Summary Compensation Table. The CDI states that the company is not permitted to exclude the new principal executive officer as Instruction 1 only applies to those executive officers who are included in the Summary Compensation Table under Item 402(a)(3)(iii) because they are the three most highly compensated executive officers other than the principal executive officer and the principal financial officer. Under Item 402 generally, the principal executive officer and the principal financial officer are, per se, named executive officers, regardless of compensation level. Consequently, Instruction 1 to Item 402(t)(2) is not instructive as to whether the principal executive officer or principal financial officer is a named executive officer.

The SEC also notes that its position applies to Instruction 2 to Item 1011(b), which is the corresponding instruction in Regulation M-A.  

Smaller Reporting Companies — New CDIs 169.01, 169.02 and 169.03 discuss issues relevant to smaller reporting companies. In particular, the questions clarify that an issuer that is a smaller reporting company as of January 21, 2011, is entitled to rely on the delayed phase-in period for smaller reporting companies for the new say-on-pay and sayon- golden parachute rules. Additionally, the new CDIs provide example situations to help issuers determine their eligibility for smaller reporting company status for 2011 and for the new rules.  

Frequency Recommendation Trends  

As of March 25, 2011, companies had made the following frequency recommendations for say-on-pay vote:  

  • 521 companies (11 of which were smaller reporting companies) recommended an annual vote;  
  • 440 companies (36 of which were smaller reporting companies) recommended a triennial vote;
  • 37 companies (two of which were smaller reporting companies) recommended a biennial vote; and  
  • 33 companies (six of which were smaller reporting companies) made no recommendation.  

Commentators have posited that recommending anything other than an annual vote is a futile exercise as shareholders will just select an annual vote regardless of the company’s recommendation. Furthermore, ISS has issued a new policy stating that it will only support annual frequency votes.  

Nevertheless, there are advantages and disadvantages to each recommendation. An annual say-on-pay vote would be supported by ISS and may make the vote more routine to shareholders, and thus, make them less likely to find issue with the company’s executive compensation policies, practices and decisions. However, companies may be challenged by an annual vote, as analyzing the vote results and deciding what aspects of executive compensation to change will be extremely difficult to complete before the next annual vote. Some of these challenges are alleviated with a biennial vote, but the concerns about not providing shareholders an annual voice on executive compensation remain. A triennial vote, while still not in line with ISS recommendations and avoiding concerns about good corporate governance, would put less time pressure on issuers and potentially institutional investors. Issuers would be able to process the results of the vote and have the time to make positive changes to their executive compensation programs before the next say-on-pay vote. Additionally, institutional investors would be given more time to evaluate the effectiveness of long-term incentive components of compensation and to formulate their views on the company’s executive compensation generally.  

While there is no “right” recommendation for companies to make with regard to the sayon- frequency vote, as the recommendations above indicate, many companies are moving towards an annual vote on executive compensation.

Voting Results Thus Far

As of March 25, 2011, of 203 companies that have reported their voting results from their annual meeting of shareholders, only four companies have had their say-onpay proposals rejected by shareholders, including computer giant Hewlett-Packard. Shareholders appear to have rejected the executive compensation at these companies because of concerns about paying executives excessive compensation and their approach to performance-based compensation, while shareholders at Hewlett-Packard seem to be signaling a broader dissatisfaction with the company. In addition, a number of say-onpay proposals have passed by a narrow margin, clearly indicating that those companies’ shareholders as a whole are not satisfied with the current executive compensation programs.

In say-on-frequency votes, shareholders have overwhelmingly supported annual vote recommendations and are expressing a clear preference for an annual vote even when that is not the recommendation. Based on the results that have been reported thus far, of the 117 companies that recommended a triennial vote, 51 (or 44 percent) had their shareholders indicate a preference for annual votes. That percentage decreases to 41 percent if smaller reporting companies are excluded. Of the 12 companies that recommended a biennial vote, nine had their shareholders indicate a preference for annual votes. There have been eight companies that did not make any frequency recommendation, and for seven of them, shareholders indicated a preference for an annual vote.